Building Alliances for Corporate Social Responsibility
49 Pages Posted: 26 Jun 2019 Last revised: 1 Jul 2022
Date Written: June 28, 2022
Problem definition: When multiple companies share the same social responsibility problem, forming an industry alliance can help the companies pool resources, spread the cost, and have greater influence. Companies, however, have the incentive to free ride on the effort of others. What mechanism can avert free riding and let companies form a successful alliance?
Methodology/results: Motivated by an industry case, we model alliance formation as a two-stage public goods game among companies having different brand values and degrees of prosociality. One company can invite another to form an initial alliance before other companies decide to join. We find that the invitation mechanism is the key to success. We identify two mechanisms that affect the type of alliance formed: status seeking and prosocial behavior. We test the theory in an incentivized laboratory experiment. The experiment confirms the essential role of invitation. The experiment also shows that the initiator predominantly invites a high-brand-value company—evidence of status seeking. Once an initial alliance is formed, the prosocial tendency drives further contribution of other high-brand-value companies, but not that of low-brand-value companies.
Managerial implications: Establishing an early alliance is the key to addressing a shared social responsibility problem. Companies should leverage status seeking and prosocial tendencies to engage other companies. While there may be clear advantages to inviting companies with highly valued brands, our results show that when the prosocial tendency is strong and status seeking weak, an initiating company may benefit by proactively inviting lesser-known brands early on.
Keywords: behavioral operations, social responsibility in supply chains, public goods games, status
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